Saving Up for Retirement

When you are planning for retirement, the sooner you begin investing and saving, the better because of compound interest. Even if you haven’t started saving yet or you begin late, you aren’t alone. There are ways of catching up to increase your funds during retirement. It isn’t too late to begin. With a few steps, you can boost your savings to make your golden years more enjoyable.

Reduce Spending

Look at your budget and see what can be cut. For example, you might be able to get a lower rate on car insurance. Bringing your lunch to work instead of buying it is another way of reducing your expenditures. If you have debt, like car debt or student loans, now is the time to do something about it. If you have debt from school, it’s a good idea to look into student loan consolidation. That involves combining multiple loans with different term lengths and rates to one loan. If you have federal student loans, look into a Direct Consolidation Loan from the U.S. Department of Education. If you want to reduce your rates from a private lender, look into student loan refinancing. When you have extra money, resist the temptation to buy an object or experience. Instead, take a salary bonus or other unexpected money and put it toward retirement. Plan on putting at least half toward your goal. If you get a raise at work, increase the percent you put toward retirement.

Use Your 401(k)

Many employers offer traditional 401(k) plans, and if you’re eligible, you can put pre-tax funds toward it. This can be a significant advantage. For example, perhaps you are in a 12 percent bracket and want to put $100 from each paycheck in. But since this is pre-tax money, your take home pay only drops by $88 instead of $100. Of course, you’ll still have to factor in Medicare, Social Security, and any local taxes. Still, it lets you invest more without hurting your budget. It’s a good idea to research what your employer offers. Some might offer Roth 401(k) plans which use after-tax income instead of pre-tax money. Think about your potential income tax bracket during retirement to see if this is a good option.

Get an IRA

Consider opening an individual retirement account (IRA) to increase your long-term nest egg. There are a couple of options. For example, a traditional IRA might work depending on whether you have a strong retirement plan. When you contribute to a traditional IRA, the contributions might be tax-deductible. Your earnings can then grow until you withdraw from the account when you are retired. Your phased-out income limits are based on your filing status, and if you meet them, looking into a Roth IRA might be a good option. Your after-tax dollars fund them, but after you have turned 59 and a half, your qualified distributions are free of federal taxes. Qualified distributions include earnings, and they might also be free of state taxes if you meet certain holding period requirements.